Bank pressured to print more money as new cash is hoarded

The Bank of England was under pressure today to print more money amid signs that its quantitative easing programme is not yet working.

Figures today showed that little of the extra money being pumped into the economy is reaching households and businesses as banks hoard cash to bolster their balance sheets.

The Bank is injecting cash by buying assets such as Government bonds and corporate debt held by commercial banks and other financial institutions.

The annual growth rate of M4 money supply was just 2.5% in March — down from 3% in February and the lowest since records began in 1998. Money supply to households rose by £3.3 billion or 3.7% in March but supply to business fell by £4.1 billion or 2.1%.

Howard Archer, chief UK economist at Global Insight, said: "This suggests that banks were still reluctant to substantially step up their lending to corporates. This is critical for recovery prospects."

The banks' reluctance prompted calls in the City for the Bank to extend quantitative easing and it might outline an extension as early as next week's meeting of the monetary policy committee.

The Bank is half way through pumping an extra £75 billion into the economy and has permission from the Government to print a further £75 billion if needed.

Richard McGuire, fixed income strategist at RBC Capital Markets, said: "We remain of the view that the Bank will extend the quantitative easing project beyond the £75 billion currently earmarked owing to the risk of doing too much being the lesser of the two evils."

Analysts said it was too early to judge the effectiveness of the policy.

Jonathan Loynes of Capital Economics said: "There is little evidence that it is working. The good news is that it is a bit early to make a judgment but the bad news is that there is no certainty that it will work."

But Philip Shaw of Investec said: "Because the effects of quantitative easing are uncertain, they'll want to look at the effects before committing to extending the scale of purchases."